When you’re starting an eCommerce business, you also need to determine how to acquire the products you want to sell. Two common methods of acquiring product inventory are dropshipping and wholesaling. But the question arises, dropshipping vs wholesale? Which is better?

Once you start your own business, the myriad of decisions you have to make to get off the ground can feel daunting. What web hosting provider will you use? What will your first blog post be about? How will you reach your customers by optimizing your site?

It’s important to understand differences between these methods in order to make the right choice for your business, so we’ll break it down for you here.

Dropshipping vs wholesale: what’s the difference?

Dropshipping and wholesaling are two different supply chain management methods that help eCommerce businesses fulfill orders and get products to their customers. They’re both options for businesses that don’t want to manufacture their own product, but they’re different in a few key ways.

Wholesale

Buying wholesale is the process of buying product inventory at a discounted rate from the manufacturer and selling it at a higher price to customers. Wholesaling is a good option for new eCommerce business owners because it’s easy: the products are already being manufactured and sold, so business owners can buy quantities of what they’re selling in their eCommerce stores and manage order fulfillment and shipping to customers directly.

Pros

When business owners buy products wholesale, they’re purchasing an inventory that is already manufactured and sold successfully (otherwise, the wholesaler wouldn’t make the product). This minimizes risk associated with purchasing quantities of the product for the eCommerce business owner’s inventory — if customers already purchase it from other sellers, they’re likely to purchase it from another eCommerce store as well.

The business owner can control product inventory by purchasing product from a wholesaler to keep up with customer demand. Having the product in stock and under the store’s control means they can better communicate quantities and fulfill orders faster for customers.

Cons

Business owners can’t set the price of their product — it’s determined by the manufacturer or wholesaler.

If an eCommerce store owner sells a variety of different products, they will have to work with multiple wholesale partners to fulfill customer orders, which can be hard to manage and keep organized.

When purchasing inventory wholesale, business owners must typically purchase large quantities of product and store it until it’s sold to customers. This requires a business premises that’s large enough to and capabilities to ship orders, which can be costly and require up-front investment when you first launch your business.

Margins and risks

According to Shopify, it’s possible to see up to a 50% margin on wholesale products sold by retailers, and they might be slightly higher than dropshipping but lower than manufacturing.

The biggest risk of purchasing products wholesale is the lack of guarantee: There’s a risk that the business owner might not be able to sell the entire inventory, and there’s a risk that the seller won’t be able to break into a competitive market if the product is common.

Examples of wholesalers

The Lodge is an example of an eCommerce store that purchases men’s clothing and accessories from wholesalers and sells items at retail prices to customers. Costco Wholesale’s online store is another example of an eCommerce store that sells a variety of wholesale goods at lower prices for their customers.

Dropshipping

Dropshipping is the process of selling products to customers without having an inventory. The dropshipping supplier fulfills customer orders and sends product to them, and the eCommerce store owner profits by charging customers at a higher rate than the dropshipper charges them for their service.

Pros

With dropshipping, business owners don’t have to purchase large inventories of product. Instead, they’re only buying the product that their customers have ordered. This minimizes risk of losing money on unsold inventory for the business owner.

When you compare dropshipping vs wholesale, dropshipping looks like a great choice for first-time entrepreneurs because startup costs are low: eCommerce store owners only purchase the product their customers have purchased versus large quantities from wholesalers, so there is a quick turnaround for return on investment and profit generation.

Business owners don’t have to manage the processing and shipping of orders — that is handled by the dropshipping company, which further cuts down on costs and requires less work for the eCommerce store owner.

Cons

When business owners purchase product from dropshipping companies, they achieve smaller profit margins than with purchasing product wholesale because the dropshipping partner assumes order processing and shipping costs.

Margins and risks

Profit margins are the difference between what business owners charge customers and what they pay their dropshipper. The low upfront costs of using a dropshipping supplier eats into the profit margins, which typically hover around 20%.

The risk of choosing dropshipping vs wholesale is that store owners won’t sell enough product to generate enough profit to compensate for the lower margins, but with a diverse database of products to choose from and commitment to marketing, business owners can generate buzz and engagement.

Examples of dropshippers

One of the most well-known examples of a business that uses dropshipping services is Amazon. Although they process and ship many orders from their warehouses, products sold by third-party vendors are processed and shipped by external dropshippers. Another example is Zappos, who sells shoes to customers once they’re purchased from a dropshipping partner.

Once you’ve decided which method is right for you and your business, you’re ready to select reliable company you could trust. Next, we’ll compare Doba, SaleHoo and Worldwide Brands and see how they stack up against Oberlo’s dropshipping solution.

Dropshipping vs wholesale: Doba review

Doba was founded in Utah (USA) in 2002 and connects eCommerce store owners with dropshipping suppliers around the world. The Doba platform is designed to be a one-stop shop for new business owners to launch their eCommerce stores off the ground by providing them with access to a variety of products. Let’s evaluate the pros and cons of Doba.

Pros

Doba connects business owners with a variety of dropshipping suppliers, so they can sell and purchase diverse products for their customers.

The platform is easy to use and offers a variety of free educational resources, such as ebooks, blog posts, and infographics for business owners to learn more about eCommerce and supply chain management.

Cons

Doba membership isn’t as affordable as other dropshipping services: As of October 2016, membership pricing ranged from $29 to $249 per month, depending upon the subscription.

Product prices are high and therefore have trouble competing against similar products sold by major eCommerce sites, such as eBay and Amazon.

Customer reviews reflect problems with customer service, including difficulty connecting with representatives and being charged during their free trial period.

Dropshipping vs wholesale: SaleHoo Review

SaleHoo was founded in New Zealand in 2005 and connects business owners to a database of dropshipping suppliers through their user interface. One feature that’s distinctive compared to other dropshipping database competitors are their Market Research Labs, which allows users to find potentially lucrative customer niches they can market and sell to.

Pros

SaleHoo is somewhat affordable, with subscriptions ranging between $27 and$97 per month in October 2016.

Dropshipping suppliers and products are all reviewed by SaleHoo analysts, and with their 60-day money back guarantee, business owners can be confident in the product they’re purchasing from the database.

Cons

SaleHoo has limited resources for customer education: Their content marketing strategy isn’t as built out as their competitors, and their site offers customers fewer free tools to educate themselves.

The affordable price reflects that the database isn’t as large as other dropshipping databases, such as AliExpress, the world’s largest online B2B marketplace with over 200 million items businesses can dropship. This size limits eCommerce store owners in terms of variety and pricing of products they can offer customers.

Some product prices are high and potentially unable to compete against other prices on major reselling sites, such as Amazon or eBay.

Dropshipping vs wholesale: Worldwide Brands review

Worldwide Brands was founded in 1999 and offers a similar service to its competitors above: it’s a directory of products eCommerce store owners can purchase from wholesalers and manufacturers. Worldwide Brands is geared toward higher-quality products in the more expensive brackets of different markets, and with that comes higher membership and product prices. It’s a worthwhile investment for customers looking for a wide variety of options and helpful support for the lifetime of their business.

Pros

Worldwide Brands has a large directory on the market, and the sellers and distributors are all certified by the company to ensure a quality experience for their customers.

Although the membership fee is steep ($299 as of October 2016), it’s a lifetime membership, so it can repay itself depending on the level of success an eCommerce store experiences.

Cons

The up-front cost of Worldwide Brands is higher than its competitors, and if customers aren’t working to access customers and fulfill orders efficiently, they may not see a rapid return on investment.

There are extra Worldwide Brands services that are sold to users and billed separately from the membership fee, which are additional high costs.

Membership isn’t the perfect fit for first-time eCommerce business owners who may need additional time, resources, and support at an affordable price to get their business up and running.

Dropshipping vs wholesale: why Oberlo?

Import hundreds of products to your store in minutes.

The most important thing when starting a new business is to secure a supplier so you can start connecting with your customers and meeting their needs. A features-rich dropshipping solution provides a strong infrastructure for your online business, and dropshipping from AliExpress via Oberlo is the ideal solution to launch your eCommerce business. Oberlo is clearly voting for the first one in the dropshipping vs wholesale battle.

Oberlo was founded in 2015 and takes the work out of sourcing products for your eCommerce store with its all-in-one solution: It offers a seamless integration with Shopify that allows you to quickly and easily add products into your store to sell to customers. Then, when the products are purchased, Oberlo processes and ships the packages from the AliExpress marketplace to your customers.

With Oberlo, you have access to their browser extension platform that adds AliExpress products to your store with the click of a button while you’re browsing their inventory of products. Additionally, you only have to click one more button to get the product to your customers once they’ve placed orders, and then Oberlo handles order shipping and fulfillment.

Oberlo customer support is readily available for 20 hours per day during the week, in addition to a forum to communicate with other Oberlo eCommerce customers and a plethora of educational resources on their website, such as blog posts, ebooks, and courses. Oberlo constantly monitors their inventory and product pricing, so business owners aren’t at risk of running out of product stock and getting a bad business review from an unsatisfied customer.

At this point, you’re probably curious about Oberlo’s pricing, and there’s more good news: Oberlo offers a completely free starter plan. This price is vastly lower than the competitors discussed previously with access to similar robust databases of products at wholesale prices.

There are numerous dropshipping options available to eCommerce store owners first launching their business. With so much to do to establish your brand, identify your audience, and reach out to customers, it’s the best possible investment to find and order products in a streamlined and affordable way. This is the solution that Oberlo offers.

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Tomas Laurinavicius

Tomas Laurinavicius is a traveling lifestyle entrepreneur and blogger from Lithuania. He writes about habits, lifestyle design, and entrepreneurship on his blog and weekly lifestyle design newsletter. He's currently traveling the world with a mission to empower 1 million people to change lifestyle for good.